Before I make a product-driven case for Snap Inc. achieving a $100 billion market cap by 2020, I should note that I’ve been a Snapchat bear for much of the company’s existence. That guy at the water cooler scoffing at Evan Spiegel for turning down Facebook’s $3 billion acquisition offer and complaining that the Snapchat app violates every principle of user-centric design?

Guilty.

The value proposition of Snapchat

In fairness to Snapchat, it didn’t take long for observers to understand the potential of ephemeral, visual messaging to disrupt the hyper-curated and invasive world of social media, along with the unsecure and, well, boring experience provided by SMS and vanilla messaging apps. The core Snapchat experience offers three advantages over competing mediums for digital interaction:

Authenticity: With less reason to worry about embarrassment, privacy or a scoreboard enabling you to directly benchmark your “popularity” to others, we have more reason to post what we want, without censoring or curating ourselves.

Expressiveness: Our optic nerves are the highest bandwidth channels available for engaging with the world outside our heads. From drawing tools to AR lenses, Snapchat offers users a more multi-dimensional experience than competing modes of communication.

Playfulness: Snapchat cements its hold on users with hidden features that encourage exploration, and, therein, engagement; it has taken the art of the “Easter egg” and turned it into a core feature. Elements of gamification (i.e. “snapstreaks”) add a crucial element of fun absent from comparable platforms.

As someone who experiences mild anxiety whenever I post a photo on Instagram or Facebook (“but will it get likes?”) despite my nominal status as a mature adult, Snapchat has been a game-changer. I feel less inhibited in sharing everyday moments with close friends, or reaching out to folks I haven’t seen in a while when I spot something quirky in the world that is relevant to them.

When you sum these disinhibitions, you have a medium for interaction that helps users communicate more, and better reflects who we are. When you sum a set of engaged and authentic users, you have a network effect that can easily withstand half-hearted attempts to puncture it (i.e. Facebook’s Poke).

The problem with Snapchat

Snapchat has built on the core experience created by ephemeral messages and Stories with features like video and group chat that bring the platform to parity with other social apps. These features are defensive by design, and though they may staunch user attrition at the margin, they aren’t a reason anyone comes to Snapchat.

The only moat shielding Snapchat’s core experience from replication by motivated competitors is its network of engaged users — and there are legitimate concerns about the depth of that moat. Snapchat’s ephemerality is its greatest strength, but also its Achilles heel: Without user-generated content (UGC) that persists, the app lacks the intrinsic inertia that keeps users engaged with products like Facebook, even if they are less than satisfied with the user experience.

There is tremendous value yet to be unlocked by Snap Inc.

Of course, this is a deep enough moat to box out just about every new entrant — except the one that matters: Facebook.

Snapchat bears have been singularly focused on a key correlation since Snap released its S-1: the introduction of Instagram Stories and a sharp drop in Snapchat’s growth rate in daily active users (DAUs), which both occurred in Q4 2016. There are other worrying indicators: For example, power users of both platforms have reported that comparable Stories get more engagement on Instagram than on Snapchat.

I believe the other issues commonly pointed out by Snap bears are critical in a tactical sense, but strategically irrelevant. Snap’s $2 billion commitment to Google Cloud? Not a problem — if they can keep growing. If you believe in the competency of Snap’s executive team in managing the pace of their roadmap and burn — by no means a trivial question, to be clear — it seems reasonable to put these considerations aside when taking a fundamental, long-term view on Snap’s potential.

This is the only question that matters: Can Snapchat produce defensible growth in active users and increased engagement, which is a proxy for addressable revenue per user? What valuable experiences can they create for users that Facebook will have a hard time copying? The best way of approaching the question of long-term value is stepping back from short-term trends and thinking about the Snapchat product roadmap.

Snapchat brought authenticity, expressiveness and fun to our interactions with each other. I believe that their path to a $100 billion market cap involves applying that core set of values to our interactions with everything else: Snap will become the leading platform for augmented reality experiences.

At a high level, AR features are authentic because they are only visible to folks “in the know,” expressive because they create a brand new channel for interacting with the world and playful by making the mundane interesting. Unlike the ephemeral content produced by interaction between users, Snapchat AR content could become a permanent fixture in the world around us, affording Snap with the UGC moat it needs to grow to its full potential without hemorrhaging users to competitors.

You only need to read one paragraph in Snapchat’s S-1 to find support for this view:

We believe that the camera screen will be the starting point for most products on smartphones. This is because images created by smartphone cameras contain more context and richer information than other forms of input like text entered on a keyboard. This means that we are willing to take risks in an attempt to create innovative and different camera products that are better able to reflect and improve our life experiences.

Translation: Competing with Instagram, SMS, Messenger and other social platforms is only the beginning. Snapchat wants to connect brands searching for a pristine and novel customer engagement channel with consumers who seek “improved,” richer experiences.

To be clear, this doesn’t require Snap to go head-to-head with Magic Leap and HoloLens. The most influential input in my transformation into a Snap bull is the success of Niantic’s Pokémon GO, which demonstrated that augmented reality experiences can be compelling, addicting and lucrative, even when contained in a smartphone form factor. I’m not the only one who believes this: so does Mark Zuckerberg.

My guess is that Snapchat will eventually attempt an end-to-end lockup of the space by launching sophisticated AR hardware; Spectacles were a successful dry run for this strategy — but for the next three years, they will follow a platform-agnostic approach and focus entirely on creating augmented reality experiences and content that is compelling on smartphones.

Roadmap to $100 billion

Indeed, $100 billion is a big number — a larger market capitalization than Tesla, Netflix or General Motors today.

Right now, Facebook has a forward revenue multiple of 9.5x off estimated 2017 revenue. Let’s simplify and say that for Snapchat to comfortably achieve a $100 billion valuation by 2020, we need to believe that it will earn ~$10 billion in 2020 revenue. This could mean 250 million users who each generate average revenue of $10 per quarter.

This is a high bar, considering that Snapchat’s average revenue per daily active user (ARPDAU) currently hovers around $1 per quarter. Can we imagine a product roadmap that builds on Snapchat’s strengths to drive engagement and hit that ARPU benchmark? Here are a few ideas:

2017: Snap launches Shop, a way to snap a picture of any product visible in media — think clothing, accessories, furniture in a TV show or movie — identify it, and buy it. The closest comparison might be Houzz, which has roughly 35 million users and could be on track to generate $1 billion in annual revenue from its advertising and marketplace businesses for a quarterly ARPMAU of ~$7.

2018: Snap launches Games, a platform for publishers to build social AR games within the Snapchat app. The obvious comparable here is Pokémon GO, which generated $950 million in just six months of 2016 off a rolling average of 30 million daily active users for an ARPDAU per quarter of ~$16.

2019: Snap launches Places, a way for consumers and businesses to tag locations with “Easter eggs” that are visible in augmented reality through the Snapchat app. Imagine walking into an In-and-Out or Starbucks and flipping open your Snapchat app to view the secret menu, or scanning your surroundings through the app to see messages left by your friends. Though not an ideal comparable, Yelp earned $713 million in net revenue in 2016 off 145 million monthly unique visitors for an ARPMAU per quarter of ~$1.25.

2020: Snap launches Spectacles 2.0, a rebranded set of augmented reality spectacles produced after its successful acquisition of Magic Leap.

These calculations are based on public data and should be considered directional in nature, but the key contention stands: If Snap successfully launches one or more of these AR products, or others that are beyond my imagination, a $10 quarterly ARPU and a $100 billion valuation doesn’t seem quite as far-fetched.

The bottom line

If you believe the following three propositions, you should consider taking a long position on Snap:

Augmented reality experiences are a natural extension of Snapchat’s unique appeal to users, while providing Snap with a potential user-generated content moat for the first time;

Augmented reality experiences can generate strong engagement and high revenue per user, and, in the short term, smartphone-based AR experiences are compelling;

Snap will execute to perfection on product and avoid unforced errors, balancing long-term product investment with short-term defense against Facebook, cash management, international growth and optimization of their existing ad business.

With this post, I’ve done my best to build the case for propositions one and two. Is investing in Snap still a tremendous act of faith in Evan Spiegel and CTO Bobby Murphy? Absolutely — especially given their control of the company.

But if we put aside short-term volatility and focus instead on viable paths for Snapchat to extend its core appeal to users with products that unlock a new frontier of interaction, it becomes apparent that there is tremendous value yet to be unlocked by Snap Inc.